Moody's Corporation Reports Results for Third Quarter 2014

3Q14 operating income up 20% from 3Q13 to $349.7 million; adjusted
operating income up 18% to $372.9 million

3Q14 GAAP EPS up 20% from 3Q13 to $1.00; non-GAAP EPS up 17% from 3Q13
to $0.97

Maintain FY 2014 non-GAAP EPS guidance range of $3.95 to $4.05

October 24, 2014 07:00 AM Eastern Daylight Time

NEW YORK--(BUSINESS WIRE)--Moody’s Corporation (NYSE:MCO) today announced results for the third
quarter 2014.

SUMMARY OF RESULTS FOR THIRD QUARTER 2014

Moody’s reported revenue of $816.1 million for the three months ended
September 30, 2014, up 16% from $705.5 million for the third quarter of
2013. Operating expenses for the third quarter of 2014 totaled $466.4
million, a 13% increase from the prior-year period. Operating income for
the quarter was $349.7 million, a 20% increase from $291.5 million for
the same period last year. Adjusted operating income, defined as
operating income before depreciation and amortization, was $372.9
million, an 18% increase from $314.9 million last year. GAAP EPS of
$1.00 increased 20% against the same period last year. Non-GAAP EPS of
$0.97, which excludes a $0.03 benefit from the resolution of a legacy
tax matter, increased 17% from the third quarter of 2013.

"Moody’s achieved strong financial results in the third quarter, with
record revenue growth in Moody’s Analytics, and double-digit revenue
growth in nearly every line of business in both Moody’s Investors
Service and Moody’s Analytics,” said Raymond McDaniel, President and
Chief Executive Officer of Moody’s. “Based on our strong year-to-date
performance, we are reaffirming our EPS guidance in the range of $3.95
to $4.05.”

THIRD QUARTER REVENUE

For Moody’s Corporation overall, global revenue of $816.1 million for
the third quarter of 2014 was up 16% from the third quarter of 2013.
U.S. revenue of $449.1 million and non-U.S. revenue of $367.0 million
increased 15% and 17%, respectively, from the third quarter of 2013.
Revenue generated outside the U.S. represented 45% of Moody’s total
revenue for the quarter, consistent with the year-ago period.

Global revenue for Moody’s Investors Service (“MIS”) for the third
quarter of 2014 was $543.1 million, up 14% from the prior-year period.
The impact of foreign currency translation on MIS revenue was
negligible. U.S. revenue of $329.1 million and non-U.S. revenue of
$214.0 million increased 13% and 14%, respectively, from the year-ago
period.

Within MIS, global corporate finance revenue of $260.7 million in the
third quarter of 2014 increased 12% from the prior-year period,
reflecting a favorable mix of bond and bank loan issuance within the
quarter, as well as additional monitoring revenue associated with new
ratings customers. Corporate finance U.S. and non-U.S. revenue were up
8% and 19%, respectively, compared to the third quarter of 2013.

Global structured finance revenue totaled $102.1 million for the third
quarter of 2014, a 22% increase from a year earlier, primarily
reflecting increased rating activity for collateralized loan obligations
(CLOs). Structured finance U.S. and non-U.S. revenue grew 31% and 7%,
respectively, from the year-ago period.

Global financial institutions revenue of $91.8 million in the third
quarter of 2014 increased 16% compared to the prior-year period. U.S.
revenue increased 9% primarily due to increased issuance by insurance
companies. Non-U.S. revenue increased 22% due to higher levels of bank
issuance from China and Europe.

Global public, project and infrastructure finance revenue was $88.5
million for the third quarter of 2014, an increase of 7% from the third
quarter of 2013. U.S. revenue was up 15% primarily due to increased
rating activity in public finance and project finance. Non-U.S. revenue
decreased 5% from the prior-year period primarily due to lower
infrastructure issuance in Europe.

Global revenue for Moody’s Analytics (“MA”) for the third quarter of
2014 was $273.0 million, up 20% from the third quarter of 2013. Foreign
currency translation favorably impacted MA revenue by 2 percent. U.S.
revenue of $120.0 million and non-U.S. revenue of $153.0 million for the
third quarter of 2014 increased 19% and 21%, respectively, from the
prior-year period.

Revenue from research, data and analytics of $146.8 million increased by
10% from the prior-year period, driven by strong sales of credit
research and content licensing. Enterprise risk solutions revenue of
$81.1 million was up 26% over the prior-year period primarily due to
growth in subscription and services revenue. Revenue from professional
services of $45.1 million was up 54% from the prior-year period,
primarily reflecting the December 2013 acquisition of Amba Investment
Services.

Third quarter 2014 operating expenses for Moody’s Corporation were
$466.4 million, 13% more than the prior-year period. This increase was
primarily due to higher compensation and real estate costs attributable
to additional headcount, as well as increased incentive compensation
accruals. The impact of foreign currency translation on operating
expenses was negligible. Operating income of $349.7 million for the
quarter increased 20% from $291.5 million for the same period last year.
Adjusted operating income, defined as operating income before
depreciation and amortization, was $372.9 million, an 18% increase from
$314.9 million last year. The impact of foreign currency translation on
operating income was negligible. Moody’s operating margin for the third
quarter of 2014 was 42.9%, up from 41.3% in the third quarter of 2013.
Adjusted operating margin of 45.7% for the third quarter of 2014 was up
from 44.6% for the same period last year.

Moody’s effective tax rate was 33.5% for the third quarter of 2014, an
increase from 29.1% for the prior-year period, primarily due to higher
U.S. and non-U.S. taxes on foreign income and certain discrete items
that reduced the effective tax rate in 2013.

YEAR-TO-DATE RESULTS

Moody's Corporation revenue for the first nine months of 2014 totaled
$2,456.8 million, an increase of 12% from $2,193.3 million for the same
period of 2013. The impact of foreign currency translation on revenue
for the first nine months was negligible. Revenue at MIS totaled
$1,690.6 million for the first nine months of 2014, an increase of 10%
from the same period in 2013. MA revenue rose 17% from the first nine
months of 2013 to $766.2 million.

Expenses for the first nine months of 2014 totaled $1,362.4 million, 7%
higher than the year-ago period, which included costs associated with a
first quarter 2013 litigation settlement. The impact of foreign currency
translation on expenses for the first nine months was negligible.
Year-to-date operating income of $1,094.4 million grew 19% from $922.7
million for the same period of 2013. Adjusted operating income of
$1,163.0 million was up 17% from the prior-year period. Moody’s
operating margin for the first nine months of 2014 was 44.5%, up from
42.1% for the first nine months of 2013. Adjusted operating margin of
47.3% for the first nine months of 2014 was up from 45.3% for the same
period last year.

GAAP EPS of $3.48 for the first nine months of 2014 increased 31% from
$2.66 for the same period in 2013. Non-GAAP EPS of $3.09 for the first
nine months of 2014 grew 10% from $2.80 for the same period in 2013.
Year-to-date 2014 non-GAAP EPS excludes a $0.36 gain resulting from
Moody’s acquisition of a controlling interest in ICRA Ltd. in the second
quarter and the $0.03 legacy tax benefit in the third quarter.
Year-to-date 2013 non-GAAP EPS excludes the first quarter litigation
settlement charge of $0.14.

CAPITAL ALLOCATION AND LIQUIDITY

During the third quarter of 2014, Moody’s repurchased 3.5 million shares
at a total cost of $320.5 million, and issued 0.9 million shares under
our annual employee stock-based compensation plans. Outstanding shares
as of September 30, 2014 were 208.6 million, a 3% decline from a year
earlier. As of September 30, 2014, Moody’s had $1.0 billion of share
repurchase authority remaining under its current programs. At
quarter-end, Moody’s had $2.5 billion of outstanding debt and $1.0
billion of additional debt capacity available under its revolving credit
facility. Total cash, cash equivalents and short-term investments at
quarter-end were $2.1 billion, an increase of $60.9 million from a year
earlier. Free cash flow for the first nine months of 2014 of $653.0
million increased $30.5 million, or 5%, from the same period a year ago.

ASSUMPTIONS AND OUTLOOK FOR FULL-YEAR 2014

Moody's outlook for 2014 is based on assumptions about many
macroeconomic and capital market factors, including interest rates,
corporate profitability and business investment spending, merger and
acquisition activity, consumer borrowing and securitization, and the
amount of debt issued. There is an important degree of uncertainty
surrounding these assumptions, and, if actual conditions differ, Moody's
results for the year may differ materially from the current outlook. Our
guidance assumes foreign currency translation at end-of-quarter exchange
rates.

Moody’s full-year 2014 non-GAAP EPS guidance remains in the range of
$3.95 to $4.05, which excludes the $0.36 gain resulting from Moody’s
acquisition of a controlling interest in ICRA Ltd. in the second quarter
and the $0.03 legacy tax benefit in the third quarter.

Certain components of Moody’s 2014 revenue guidance have been modified
to reflect the Company’s current view of business conditions. While
global MIS revenue for full-year 2014 is still expected to increase in
the high-single-digit percent range, non-U.S. MIS revenue is now
expected to increase approximately 10 percent. Within MIS, corporate
finance revenue is now expected to increase approximately 10%;
structured finance revenue is now expected to increase in the
high-single-digit percent range; and public, project and infrastructure
finance revenue is now expected to increase in the mid-single-digit
percent range.

A full summary of Moody’s guidance as of October 24, 2014 is included in
the 2014 Outlook table at the end of this press release.

CONFERENCE CALL

A conference call to discuss third quarter 2014 results will be held
this morning, October 24, 2014, at 11:30 a.m. Eastern Time. Individuals
within the U.S. and Canada can access the call by dialing
1-877-400-0505. Other callers should dial +1-719-234-7477. Please dial
into the call by 11:20 a.m. Eastern Time. The passcode for the call is
“Moody’s Corporation.”

The teleconference will be webcast with a slide presentation and can be
accessed on Moody's Investor Relations website, http://ir.moodys.com,
until 3:30 p.m. Eastern Time, November 22, 2014.

A replay of the teleconference will be available from 3:30 p.m. Eastern
Time, October 24, 2014 until 3:30 p.m. Eastern Time, November 22, 2014.
The replay can be accessed from within the United States and Canada by
dialing 1-888-203-1112. Other callers can access the replay at
+1-719-457-0820. The replay confirmation code is 9971396.

*****

ABOUT MOODY'S CORPORATION

Moody's is an essential component of the global capital markets,
providing credit ratings, research, tools and analysis that contribute
to transparent and integrated financial markets. Moody’s Corporation
(NYSE: MCO) is the parent company of Moody's Investors Service, which
provides credit ratings and research covering debt instruments and
securities, and Moody's Analytics, which offers leading-edge software,
advisory services and research for credit and economic analysis and
financial risk management. The Corporation, which reported revenue of
$3.0 billion in 2013, employs approximately 9,700 people worldwide and
maintains a presence in 33 countries. Further information is available
at www.moodys.com.

Certain statements contained in this release are forward-looking
statements and are based on future expectations, plans and prospects for
Moody’s business and operations that involve a number of risks and
uncertainties. Moody’s outlook for 2014 and other forward-looking
statements in this release are made as of October 24, 2014, and the
Company disclaims any duty to supplement, update or revise such
statements on a going-forward basis, whether as a result of subsequent
developments, changed expectations or otherwise. In connection with the
“safe harbor” provisions of the Private Securities Litigation Reform Act
of 1995, the Company is identifying certain factors that could cause
actual results to differ, perhaps materially, from those indicated by
these forward-looking statements. Those factors, risks and uncertainties
include, but are not limited to, the current world-wide credit market
disruptions and economic slowdown, which is affecting and could continue
to affect the volume of debt and other securities issued in domestic
and/or global capital markets; other matters that could affect the
volume of debt and other securities issued in domestic and/or global
capital markets, including credit quality concerns, changes in interest
rates and other volatility in the financial markets; the level of merger
and acquisition activity in the U.S. and abroad; the uncertain
effectiveness and possible collateral consequences of U.S. and foreign
government initiatives to respond to the current world-wide credit
market disruptions and economic slowdown; concerns in the marketplace
affecting our credibility or otherwise affecting market perceptions of
the integrity or utility of independent credit agency ratings; the
introduction of competing products or technologies by other companies;
pricing pressure from competitors and/or customers; the level of success
of new product development and global expansion; the impact of
regulation as an NRSRO, the potential for new U.S., state and local
legislation and regulations, including provisions in the Financial
Reform Act and anticipated regulations resulting from that Act; the
potential for increased competition and regulation in the EU and other
foreign jurisdictions; exposure to litigation related to our rating
opinions, as well as any other litigation to which the Company may be
subject from time to time; provisions in the Financial Reform Act
legislation modifying the pleading standards, and EU regulations
modifying the liability standards, applicable to credit rating agencies
in a manner adverse to credit rating agencies; provisions of EU
regulations imposing additional procedural and substantive requirements
on the pricing of services; the possible loss of key employees; failures
or malfunctions of our operations and infrastructure; any
vulnerabilities to cyber threats or other cybersecurity concerns; the
outcome of any review by controlling tax authorities of the Company’s
global tax planning initiatives; the outcome of those Legacy Tax Matters
and legal contingencies that relate to the Company, its predecessors and
their affiliated companies for which Moody’s has assumed portions of the
financial responsibility; the impact of mergers, acquisitions or other
business combinations and the ability of the Company to successfully
integrate acquired businesses; currency and foreign exchange volatility;
the level of future cash flows; the levels of capital investments; and a
decline in the demand for credit risk management tools by financial
institutions; and other risk factors as discussed in the Company’s
annual report on Form 10-K for the year ended December 31, 2013 and in
other filings made by the Company from time to time with the Securities
and Exchange Commission.

Moody's Corporation

Consolidated Statements of Operations (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2014

2013

2014

2013

Amounts in millions, except per share amounts

Revenue

$

816.1

$

705.5

$

2,456.8

$

2,193.3

Expenses:

Operating

236.7

203.5

674.8

601.4

Selling, general and administrative

206.5

187.1

619.0

599.1

Depreciation and amortization

23.2

23.4

68.6

70.1

Total expenses

466.4

414.0

1,362.4

1,270.6

Operating income

349.7

291.5

1,094.4

922.7

Non-operating (expense) income, net

Interest (expense) income, net

(37.7

)

(24.4

)

(87.5

)

(68.1

)

Other non-operating (expense) income, net

16.4

(3.6

)

15.5

12.9

ICRA Gain

-

-

102.8

-

Total non-operating (expense) income, net

(21.3

)

(28.0

)

30.8

(55.2

)

Income before provision for income taxes

328.4

263.5

1,125.2

867.5

Provision for income taxes

109.9

76.7

360.6

261.2

Net income

218.5

186.8

764.6

606.3

Less: net income attributable to noncontrolling interests

3.3

2.9

12.2

8.5

Net income attributable to Moody's Corporation

$

215.2

$

183.9

$

752.4

$

597.8

Earnings per share attributable to Moody's common shareholders

Basic

$

1.02

$

0.84

$

3.55

$

2.70

Diluted

$

1.00

$

0.83

$

3.48

$

2.66

Weighted average number of shares outstanding

Basic

210.4

217.8

212.1

221.1

Diluted

214.2

222.0

216.1

225.1

Supplemental Revenue Information (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

Amounts in millions

2014

2013

2014

2013

Moody's Investors Service

Corporate Finance

$

260.7

$

233.0

$

846.0

$

754.2

Structured Finance

102.1

83.5

308.0

273.7

Financial Institutions

91.8

78.9

269.4

249.9

Public, Project and Infrastructure Finance

88.5

82.7

267.2

258.8

Intersegment royalty

22.3

19.6

65.7

57.5

Sub-total MIS

565.4

497.7

1,756.3

1,594.1

Eliminations

(22.3

)

(19.6

)

(65.7

)

(57.5

)

Total MIS revenue

543.1

478.1

1,690.6

1,536.6

Moody's Analytics

Research, Data and Analytics

146.8

133.7

432.4

393.6

Enterprise Risk Solutions

81.1

64.4

208.1

177.6

Professional Services

45.1

29.3

125.7

85.5

Intersegment revenue

3.4

3.0

10.0

8.5

Sub-total MA

276.4

230.4

776.2

665.2

Eliminations

(3.4

)

(3.0

)

(10.0

)

(8.5

)

Total MA revenue

273.0

227.4

766.2

656.7

Total Moody's Corporation revenue

$

816.1

$

705.5

$

2,456.8

$

2,193.3

Moody's Corporation revenue by geographic area

United States

$

449.1

$

391.0

$

1,335.8

$

1,209.3

International

367.0

314.5

1,121.0

984.0

$

816.1

$

705.5

$

2,456.8

$

2,193.3

Non-operating (expense) income, net

Three Months Ended

Nine Months Ended

September 30,

September 30,

2014

2013

2014

2013

Amounts in millions

Interest expense, net:

Expense on borrowings

$

(38.8

)

$

(23.9

)

$

(90.5

)

$

(65.4

)

Income

1.8

1.6

5.1

4.0

Legacy Tax benefit (a)

0.7

-

0.7

-

UTPs and other tax related liabilities

(1.7

)

(2.1

)

(3.2

)

(6.7

)

Capitalized

0.3

-

0.4

-

Total interest expense, net

$

(37.7

)

$

(24.4

)

$

(87.5

)

$

(68.1

)

Other non-operating (expense) income, net:

FX gain (loss)

$

7.6

$

(5.8

)

$

1.5

$

6.9

Legacy Tax benefit (a)

6.4

-

6.4

-

Joint venture income

2.6

2.5

7.9

7.4

Other

(0.2

)

(0.3

)

(0.3

)

(1.4

)

Other non-operating income (expense), net

16.4

(3.6

)

15.5

12.9

ICRA Gain

-

-

102.8

-

Total non-operating (expense) income, net

$

(21.3

)

$

(28.0

)

$

30.8

$

(55.2

)

(a) The 2014 amounts represent the favorable resolution
of a Legacy Tax Matter

* Represents a noncontrolling interest related to the November 2011
acquisition of Copal Partners

September 30,

December 31,

(1) Total debt consists of the following:

2014

2013

Series 2005-1 Notes due 2015 (a)

$

-

$

310.3

Series 2007-1 Notes due 2017

300.0

300.0

2010 Senior Notes due 2020 (b)

495.9

497.8

2012 Senior Notes due 2022 (c)

496.8

496.5

2013 Senior Notes due 2024 (d)

497.4

497.2

2014 Senior Notes due 2019 (e)

448.0

-

2014 Senior Notes due 2044 (f)

298.4

-

Total debt

$

2,536.5

$

2,101.8

(a) Includes a $10.3 million fair value adjustment on an
interest rate hedge at December 31, 2013

(b) Represents $500 million of 5.5% publicly traded
Senior Notes which mature on September 1, 2020; the notes were
offered to the public at 99.374% of the face amount and include a
$2.1 million reduction relating to a fair value adjustment on an
interest rate hedge at September 30, 2014

(c) Represents $500 million of 4.5% publicly traded
Senior Notes which mature on September 1, 2022; the notes were
offered to the public at 99.218% of the face amount

(d) Represents $500 million of 4.9% publicly traded
Senior Notes which mature on February 15, 2024; the notes were
offered to the public at 99.431% of the face amount

(e) Represents $450 million of 2.75% publicly traded
Senior Notes which mature on July 15, 2019; the notes were offered
to the public at 99.838% of the face amount and include a $1.3
million reduction relating to a fair value adjustment on an
interest rate hedge at September 30, 2014

(f) Represents $300 million of 5.25% publicly traded
Senior Notes which mature on July 15, 2044; the notes were offered
to the public at 99.462% of the face amount

Financial Information by Segment:

The table below presents revenue, adjusted operating income and
operating income by reportable segment. The Company defines adjusted
operating income as operating income excluding depreciation and
amortization.

Three Months Ended September 30,

2014

2013

MIS

MA

Eliminations

Consolidated

MIS

MA

Eliminations

Consolidated

Revenue

$

565.4

$

276.4

$

(25.7)

$

816.1

$

497.7

$

230.4

$

(22.6)

$

705.5

Operating, selling,general andadministrativeexpense

260.8

208.1

(25.7)

443.2

235.6

177.6

(22.6)

390.6

Adjusted operatingincome

304.6

68.3

-

372.9

262.1

52.8

-

314.9

Depreciationand amortization

11.5

11.7

-

23.2

12.1

11.3

-

23.4

Operating income

$

293.1

$

56.6

$

-

$

349.7

$

250.0

$

41.5

$

-

$

291.5

Adjusted operatingmargin

53.9%

24.7%

45.7%

52.7%

22.9%

44.6%

Operating margin

51.8%

20.5%

42.9%

50.2%

18.0%

41.3%

Nine Months Ended September 30,

2014

2013

MIS

MA

Eliminations

Consolidated

MIS

MA

Eliminations

Consolidated

Revenue

$

1,756.3

$

776.2

$

(75.7)

$

2,456.8

$

1,594.1

$

665.2

$

(66.0)

$

2,193.3

Operating, selling,general andadministrativeexpense

775.4

594.1

(75.7)

1,293.8

756.1

510.4

(66.0)

1,200.5

Adjusted operatingincome

980.9

182.1

-

1,163.0

838.0

154.8

-

992.8

Depreciationand amortization

34.3

34.3

-

68.6

34.9

35.2

-

70.1

Operating income

$

946.6

$

147.8

$

-

$

1,094.4

$

803.1

$

119.6

$

-

$

922.7

Adjusted operatingmargin

55.9%

23.5%

47.3%

52.6%

23.3%

45.3%

Operating margin

53.9%

19.0%

44.5%

50.4%

18.0%

42.1%

Transaction and Relationship Revenue:

The tables below summarize the split between transaction and
relationship revenue. In the MIS segment, transaction revenue
represents the initial rating of a new debt issuance as well as
other one-time fees while relationship revenue represents the
recurring monitoring of a rated debt obligation and/or entities that
issue such obligations, as well as revenue from programs such as
commercial paper, medium-term notes and shelf registrations. In the
MA segment, relationship revenue represents subscription-based
revenues and software maintenance revenue. Transaction revenue in MA
represents software license fees and revenue from risk management
advisory projects, training and certification services, and
knowledge outsourcing engagements.

Three Months Ended September 30,

2014

2013

Transaction

Relationship

Total

Transaction

Relationship

Total

CorporateFinance

$

180.0

$

80.7

$

260.7

$

163.5

$

69.5

$

233.0

69%

31%

100%

70%

30%

100%

Structured Finance

60.6

41.5

102.1

45.3

38.2

83.5

59%

41%

100%

54%

46%

100%

Financial Institutions

34.7

57.1

91.8

23.5

55.4

78.9

38%

62%

100%

30%

70%

100%

Public, Project andInfrastructureFinance

51.2

37.3

88.5

47.9

34.8

82.7

58%

42%

100%

58%

42%

100%

Total MIS

$

326.5

$

216.6

$

543.1

$

280.2

$

197.9

$

478.1

60%

40%

100%

59%

41%

100%

Moody's Analytics

$

74.3

$

198.7

$

273.0

$

49.0

$

178.4

$

227.4

27%

73%

100%

22%

78%

100%

Total Moody'sCorporation

$

400.8

$

415.3

$

816.1

$

329.2

$

376.3

$

705.5

49%

51%

100%

47%

53%

100%

Nine Months Ended September 30,

2014

2013

Transaction

Relationship

Total

Transaction

Relationship

Total

CorporateFinance

$

606.3

$

239.7

$

846.0

$

555.5

$

198.7

$

754.2

72%

28%

100%

74%

26%

100%

Structured Finance

186.3

121.7

308.0

159.2

114.5

273.7

60%

40%

100%

58%

42%

100%

Financial Institutions

96.3

173.1

269.4

87.3

162.6

249.9

36%

64%

100%

35%

65%

100%

Public, Project andInfrastructureFinance

156.0

111.2

267.2

157.2

101.6

258.8

58%

42%

100%

61%

39%

100%

Total MIS

$

1,044.9

$

645.7

$

1,690.6

$

959.2

$

577.4

$

1,536.6

62%

38%

100%

62%

38%

100%

Moody's Analytics

$

187.6

$

578.6

$

766.2

$

134.4

$

522.3

$

656.7

24%

76%

100%

20%

80%

100%

Total Moody's Corporation

$

1,232.5

$

1,224.3

$

2,456.8

$

1,093.6

$

1,099.7

$

2,193.3

50%

50%

100%

50%

50%

100%

Non-GAAP Financial Measures:

The tables below reflect certain adjusted results that the SEC
defines as “non-GAAP financial measures” as well as a
reconciliation of each non-GAAP measure to its most directly
comparable GAAP measure. Management believes that such non-GAAP
financial measures, when read in conjunction with the Company’s
reported results, can provide useful supplemental information for
investors analyzing period-to-period comparisons of the Company’s
performance, facilitate comparisons to competitors’ operating
results and to provide greater transparency to investors of
supplemental information used by management in its financial and
operational decision-making. These non-GAAP measures, as defined
by the Company, are not necessarily comparable to similarly
defined measures of other companies. Furthermore, these non-GAAP
measures should not be viewed in isolation or used as a substitute
for other GAAP measures in assessing the operating performance or
cash flows of the Company.

Adjusted Operating Income and Adjusted Operating Margin:

The table below reflects a reconciliation of the Company’s operating
income and operating margin to adjusted operating income and
adjusted operating margin. The Company defines adjusted operating
income as operating income excluding depreciation and amortization.
The Company presents adjusted operating income because management
deems this metric to be a useful measure of assessing the operating
performance of Moody’s, measuring the Company's ability to service
debt, fund capital expenditures, and expand its business. Adjusted
operating income excludes depreciation and amortization because
companies utilize productive assets of different ages and use
different methods of both acquiring and depreciating productive
assets. Management believes that the exclusion of this item,
detailed in the reconciliation below, allows for a more meaningful
comparison of the Company’s results from period to period and across
companies. The Company defines adjusted operating margin as adjusted
operating income divided by revenue.

Three Months EndedSeptember 30,

Nine Months Ended September
30,

(amounts in millions)

2014

2013

2014

2013

Operating income

$

349.7

$

291.5

$

1,094.4

$

922.7

Depreciation & amortization

23.2

23.4

68.6

70.1

Adjusted operating income

$

372.9

$

314.9

$

1,163.0

$

992.8

Operating margin

42.9%

41.3%

44.5%

42.1%

Adjusted operating margin

45.7%

44.6%

47.3%

45.3%

Full-Year Ended December 31,

2014

Operating margin guidance

42% - 43%

Depreciation and amortization

3%

Adjusted operating margin guidance

45% - 46%

Free Cash Flow:

The table below reflects a reconciliation of the Company’s net cash
flows from operating activities to free cash flow. The Company
defines free cash flow as net cash provided by operating activities
minus payments for capital additions. Management believes that free
cash flow is a useful metric in assessing the Company’s cash flows
to service debt, pay dividends and to fund acquisitions and share
repurchases. Management deems capital expenditures essential to the
Company’s product and service innovations and maintenance of Moody’s
operational capabilities. Accordingly, capital expenditures are
deemed to be a recurring use of Moody’s cash flow.

Nine Months Ended September
30,

(amounts in millions)

2014

2013

Net cash flows from operating activities

$

709.8

$

653.5

Capital additions

(56.8

)

(31.0

)

Free cash flow

$

653.0

$

622.5

Net cash used in investing activities

$

(244.6

)

$

(222.8

)

Net cash used in financing activities

$

(393.4

)

$

(343.2

)

Non-GAAP diluted earnings per share attributable to Moody's
common shareholders:

The Company presents this non-GAAP measure to exclude the impact of
a litigation settlement charge in the first quarter of 2013, the
ICRA Gain in the second quarter of 2014 and the benefit from a
Legacy Tax Matter in the third quarter of 2014 to allow for a more
meaningful comparison of Moody’s diluted earnings per share from
period to period. Below is a reconciliation of this measure to its
most directly comparable U.S. GAAP amount:

(amounts in millions)

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Diluted EPS - GAAP

$

1.00

$

0.83

$

3.48

$

2.66

Impact of litigation settlement charge

-

-

-

0.14

ICRA Gain

-

-

(0.36

)

-

Legacy Tax

(0.03

)

-

(0.03

)

-

Diluted EPS - Non-GAAP

$

0.97

$

0.83

$

3.09

$

2.80

Projected full-year ended December 31,

2014

Diluted EPS guidance - GAAP

$

4.34 - 4.44

ICRA Gain

(0.36)

Legacy Tax

(0.03)

Diluted EPS guidance - Non-GAAP

$

3.95 - 4.05

2014 Outlook

Moody’s outlook for 2014 is based on assumptions about many
macroeconomic and capital market factors, including interest rates,
corporate profitability and business investment spending, merger and
acquisition activity, consumer borrowing and securitization, and the
amount of debt issued. There is an important degree of uncertainty
surrounding these assumptions, and, if actual conditions differ,
Moody’s results for the year may differ materially from the current
outlook. The Company’s guidance, which is presented in the table
below, assumes foreign currency translation at end-of-quarter
exchange rates.

Full-year 2014 Moody’s Corporation guidance

MOODY'S CORPORATION

Current guidance as of October 24, 2014

Last publicly disclosed guidance as of September
30, 2014

Revenue

growth in the low-double-digit percent range

NC

Operating expenses

growth in the high-single-digit percent range

NC

Growth in compliance and regulatory expense

Less than $5 million

NC

Depreciation & amortization

Approximately $100 million

NC

Operating margin

42% to 43%

NC

Adjusted operating margin

45% to 46%

NC

Effective tax rate

Approximately 33%

NC

Non-GAAP EPS*

$3.95 to $4.05

NC

Capital expenditures

Approximately $90 million

NC

Free cash flow

Approximately $900 million

NC

Share repurchases

Up to $1.25 billion (subject to available cash,market
conditions and other ongoing capitalallocation decisions)

NC

Full-year 2014 revenue guidance

MOODY'S INVESTORS SERVICE

Current guidance as of October 24, 2014

Last publicly disclosed guidance as of September
30, 2014

MIS global

growth in the high-single-digit percent range

NC

MIS U.S.

growth in the high-single-digit percent range

NC

MIS Non-U.S.

growth of approximately 10%

growth in the low-double-digit percent range

Corporate finance

growth of approximately 10%

growth in the low-double-digit percent range

Structured finance

growth in the high-single-digit percent range

growth of approximately 10%

Financial institutions

growth in the mid-single-digit percent range

NC

Public, project and infrastructure finance

growth in the mid-single-digit percent range

growth in the high-single-digit percent range

MOODY'S ANALYTICS

MA global

growth in the mid-teens percent range

NC

MA U.S.

growth in the low-double-digit percent range

NC

MA Non-U.S.

growth in the high-teens percent range

NC

Research, data, and analytics

growth in the high-single-digit percent range

NC

Enterprise risk solutions

growth in the mid-teens percent range

NC

Professional services

growth of approximately 40%

NC

NC- There is no difference between the Company's current
guidance and the last publicly disclosed guidance for this item.

* Full-Year 2014 GAAP Diluted EPS guidance is $4.34 to $4.44 and
includes the $0.36 ICRA Gain and the $0.03 Legacy Tax benefit